EGP drops to its lowest level since March float after tariffs spark foreign investor exit

The EGP fell just over 1% against the greenback in trading yesterday, with the USD gaining EGP 0.54 on the national currency at public and private banks. The dip saw the EGP pass the 51 mark against the USD and slip to its lowest level since last year’s March float. The drop came amid global uncertainty after US President Donald Trump’s tariffs came into effect over the weekend, which sent shockwaves across global markets.

The day saw significant exit of foreign investors from our local treasury market, which banking expert Mohamed Abdel Aal thinks was due to uncertainty caused by the US tariff announcement. Al Ahly Pharos Senior Economist Esraa Ahmed seconded the notion, telling us that uncertainty about the tariffs “led investors to exit some high-risk markets and pull out of both local and foreign debt.” The yield on Egyptian USD-denominated bonds rose by more than 1% in trading on 4 April compared to the levels at the end of March, she added.

Some used USD 1.1 bn changed hands on the interbank market yesterday, a significant jump from USD 150-250 mn the market usually clocks each business day, Asharq Business reported, citing what it said were industry participants.

In parallel, the Madbouly government has been deploying a bit more hard currency than usual, looking to take advantage of the sharp decline in global commodity prices — including oil — by securing strategic contracts, a government source told EnterpriseAM. The source positioned the buys as a move to build a strategic stockpile of goods that could help shield the general budget against future price volatility.

Demand for fresh Egyptian debt also fell, with three- and nine-month t-bills offered up by the Central Bank of Egypt yesterday only managing to bring in 8.7% of the targeted EGP 70 billion, according to data from the bank. Investors demanded yields several percentage points higher than the central bank was willing to accept.

IN CONTEXT- Volatility is the name of the game in FX markets in recent months, thanks largely to Trump’s tariff talks. The greenback has lost a bit of ground in recent days against major currencies including the EUR, JPY, CAD, and GBP. It’s been a mixed bag for emerging markets currencies, with the INR gaining ground, the MXN holding steady, and Nigeria selling reserves to support the NGN amid uncertainty.

No analyst we spoke with yesterday was willing to make a call on where the EGP is heading. Allowing the EGP to slip “may be a necessary tool” to make investors think twice before liquidating positions in Egypt and existing the market, economist Hany Abou El Fotouh told us yesterday. On the other hand: A sliding currency would have a significant inflationary impact that would need to be countered by “effective and strong social protection measures to ease the heavy burden on citizens.”

Others think foreign investors could soon return to emerging markets like Egypt following a “period of evaluation, especially if the economic fundamentals remain relatively strong,” economist Mona Bedair told EnterpriseAM. “Egypt’s current advantage is in the high return on debt instruments, even with the expected interest rate cut and flexibility in the exchange rate, along with a relatively stable reform path,” she explained.

THE BOTTOM LINE- What matters here is that we see volatility in the coming days — and that it’s clear why the EGP is moving in a “logical” way. Market watchers will be reassured that policymakers do not have their thumb on the proverbial scale if (a) the interbank market remains liquid and (b) the EGP’s direction of travel makes logical sense. More concerning than the EGP sliding a few percentage points would be for us to effectively re-peg in a time of turmoil.